Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks

2019/05/01 by Christiane Baumeister, James D. Hamilton · 29 citations
Economics, Econometrics and Finance · Energy · #Market Dynamics and Volatility #Monetary Policy and Economic Impact #Energy, Environment, and Transportation Policies

paper · doi:10.1257/aer.20151569

Abstract

Traditional approaches to structural vector autoregressions (VARs) can be viewed as special cases of Bayesian inference arising from very strong prior beliefs. These methods can be generalized with a less restrictive formulation that incorporates uncertainty about the identifying assumptions themselves. We use this approach to revisit the importance of shocks to oil supply and demand. Supply disruptions turn out to be a bigger factor in historical oil price movements and inventory accumulation a smaller factor than implied by earlier estimates. Supply shocks lead to a reduction in global economic activity after a significant lag, whereas shocks to oil demand do not. (JEL C32, L71, Q35, Q43)

Citations

• Bayesian Methods for Dynamic Multivariate Models

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